Defense Department fails another audit, but makes progress

The Defense Department has failed its fifth-ever audit, unable to account for more than half of its assets, but the effort is being viewed as a “teachable moment,” according to its chief financial officer. 

After 1,600 auditors combed through DOD’s $3.5 trillion in assets and $3.7 trillion in liabilities, officials found that the department couldn’t account for about 61 percent of its assets, Pentagon Comptroller Mike McCord told reporters on Tuesday. 

McCord said the department has made progress toward a “clean” audit in the past year, but later added “we failed to get an ‘A.’” 

“I would not say that we flunked. The process is important for us to do, and it is making us get better. It is not making us get better as fast as we want,” he said. 

This year’s outcome was not unexpected. 

Federal law since the early 1990s requires mandatory audits for all government agencies, and since fiscal year 2013 all but the DOD have been able to satisfy that requirement. 

The sheer size and scope of the department — which makes up for more than half of the U.S. discretionary spending and has assets that range from personnel and supplies to bases and weapons — makes it difficult to audit.  

In December 2017, defense officials set out to scrutinize DOD’s books, the first comprehensive audit of the agency in its history. That effort failed the next year, and the four that followed.  

The agency had never expected to pass, however, due to accounting issues officials said could take years to fix. 

Because accounting records needed to complete the assessment were not available, all five audits received a “disclaimer of opinion,” though there have been improvements each time. 

McCord, who served as Pentagon comptroller from 2009 to 2017 and again since June 2021, said the most recent audit required 220 in-person site visits and 750 virtual site visits by Pentagon officials and independent public accounting firm personnel. 

What they found were several new weaknesses in how DOD accounted for its assets, which include nearly 2.9 million military personnel; equipment and weapons including 19,700 aircraft and more than 290 ships; and physical items including buildings, roads and fences on 4,860 sites worldwide. 

To break up the work, the department holds 27 separate, smaller audits and then combines the information to get the bigger picture and prevent “having something on a record that doesn’t exist in reality or having big discrepancies.” 

McCord said that while he prefers to focus on the progress in this year’s audit, each time “the progress is getting a little harder” due to “much of the lower hanging fruit having been picked,” meaning the simpler issues have already been weeded out.  

He noted that Ukraine’s ongoing war with Russia has offered a DOD personnel “a very teachable moment for us on the audit,” as it allows them to picture the critical nature of precise tracking of weapons and equipment in the event of a conflict.   

“That’s to me a really great example of why it matters to get this sort of thing right — of counting inventory, knowing where it is and knowing when it is [arriving],” McCord said. 

“I’ve asked our people to imagine that was our folks, our men and women in uniform, who were up against it,” he added.